JPMorgan Ordered to Improve Controls After 'Whale' Loss

U.S. banking
regulators on Monday ordered JPMorgan Chase & Co to
tighten its risk controls after the bank lost billions of
dollars due to bad bets from a trader known as the "London
Whale."

NEW YORK/WASHINGTON, Jan 14 U.S. banking
regulators on Monday ordered JPMorgan Chase & Co to
tighten its risk controls after the bank lost billions of
dollars due to bad bets from a trader known as the "London
Whale."

The Federal Reserve and the Office of the Comptroller of the
Currency issued the consent orders which levy no monetary
penalties and place no specific blame on any individuals.

Instead, JPMorgan and its board agreed to submit an
improvement plan to the Fed within 60 days, including taking
risk outcomes into account when considering top executives' pay
packages.

In a separate action, the banking regulators also ordered
JPMorgan to improve its compliance with the Bank Secrecy Act and
anti-money laundering requirements.

The OCC began asking JPMorgan last April about its
derivatives trades after press reports described contracts
arranged by a London-based bank trader, nicknamed the London
Whale by hedge funds for the size of the positions he took.

The company, which reports its fourth-quarter earnings on
Wednesday, ultimately lost $6.2 billion on the trades, saw its
reputation and stock price badly damaged, and for six months
lost government approval to buy back its own stock.

Monday's enforcement actions remove one small cloud hanging
over the bank, but it still faces probes from the U.S.
Department of Justice and the Securities and Exchange
Commission, among others.

The UK Financial Services Authority issued a statement on
Monday saying it is also continuing to investigate the trading
losses.

JPMorgan neither admitted nor denied the findings. Spokesman
Joe Evangelisti said the company "has been working hard to fully
remediate the issues" cited by the regulators over the losses.

Evangelisti added that complying with anti-money laundering
responsibilities "is a top priority."

"We have already made progress addressing the issues cited
in the consent orders, which contain no allegations of
intentional misconduct by the firm or any of its employees,"
Evangelisti said.

IMPROVING PAY PACKAGES

The public filings from the two regulators do not include
names of bank officials or details of who the investigators
believe did what wrong to lose the money.

The Fed order, besides concluding that there were
deficiencies in risk controls, said broadly that senior
management had failed to bring problems with the trades to the
attention of members of the company's board of directors.

While JPMorgan pay contracts include so-called "clawback"
provisions to take back compensation from executives after
losses, the Fed order requires JPMorgan directors to consider
"further enhancements to the firm's compensation processes for
senior executives," including ones that factor in poor risk
controls.

The Fed also puts new reporting requirements on the company,
including quarterly progress reports on compliance with the
order.

Jaret Seiberg, senior policy analyst at Guggenheim
Securities, said despite the lack of monetary penalties, the
enforcement action still shows that regulators are turning up
the heat on risk management systems.

"I don't think that detracts from the overall message here,"
Seiberg said about absence of any fine.

MONEY-LAUNDERING

U.S. regulators have also been cracking down recently on
lapses at banks on their anti money-laundering controls. Banks
are supposed to flag suspect transactions from sanctioned
countries or those from customers with ties to drug trafficking
or terrorism.

Britain's Standard Chartered Plc last year agreed
to pay a total of $667 million to U.S. and state regulators to
resolve anti-money laundering probes, while HSBC Holdings Plc
, also headquartered in Britain, agreed in December to
pay $1.9 billion to settle a U.S. inquiry.

In April, the OCC identified major lapses in compliance
systems at U.S. bank Citigroup Inc, which did not pay a
monetary penalty.

The anti-money laundering inquiry of JPMorgan, the biggest
U.S. bank by assets, dates back several months, Reuters reported
last week in a story that said an enforcement action was
expected.

As the regulators continue to comb through JPMorgan's
anti-money laundering system, they could find additional lapses
and issue a monetary penalty, said Peter Djinis, a former
Treasury official who helped develop some U.S. anti-money
laundering regulations.

Even if the bank does not face a monetary penalty, it is
likely to be forced to spend millions of dollars on bolstering
its anti-money laundering program.